Texas unfair practices: rebating, twisting, defamation and discrimination

Unfair practice questions describe an agent doing something and ask what it is called. The names are easy to confuse under time pressure, so learn each one by what the agent actually does.

Questions and answers, explained

All 9 questions above, with the correct answer and why it is correct. Everything here is on texas unfair practices: rebating, twisting, defamation and discrimination.

1. To get a client to drop his current life policy and buy a new one, an agent tells him the old insurer's dividends are about to stop, which is not true. Under TIC 541.051 this is an unfair practice called:

   • ATwisting: misrepresenting facts to induce a policyholder to drop a policyCorrect
   • BRebating, because the client receives a benefit not specified in the policy
   • CDefamation, because it attacks the old insurer's finances
   • DSliding, because a product was added without consent

   Why: TIC 541.051(5) makes it unfair to misrepresent to a policyholder for the purpose of inducing the policyholder to let an existing policy lapse, forfeit or surrender, which the industry calls twisting. Defamation (541.053) is a false, malicious statement about an insurer's financial condition calculated to injure it, a different offense.

   Reference TIC 541.051 — Texas outline I.D.1.c

2. An agency's website promises 'guaranteed approval, no health questions' for a policy that does require underwriting. Under TIC 541.052, this is:

   • AAcceptable puffery, as long as some version of the policy is eventually issued
   • BAcceptable, because the statute covers only newspapers, magazines and radio
   • CFalse advertising, which the statute applies to the Internet as well as printCorrect
   • DDefamation, because it misleads other agents

   Why: TIC 541.052 prohibits placing before the public any advertisement or statement containing an untrue, deceptive or misleading assertion about the business of insurance, and expressly includes statements made through the Internet, in addition to publications, mail, radio and television.

   Reference TIC 541.052 — Texas outline I.D.1.b

3. An agent tells prospects that a competing insurer is 'about to go bankrupt,' knowing it is false, to win their business. This unfair practice is:

   • ADefamation of an insurerCorrect
   • BBoycott, coercion or intimidation
   • CRebating
   • DUnfair discrimination

   Why: TIC 541.053 makes it unfair to make or circulate a statement that is false, maliciously critical of or derogatory to an insurer's financial condition and calculated to injure a person in the business of insurance, whether oral or written.

   Reference TIC 541.053 — Texas outline I.D.1.d

4. Several agencies agree among themselves to refuse to place any business with an insurer until it raises their commissions. Under TIC 541.054, this is:

   • ALawful collective bargaining between independent businesses
   • BAn unfair practice of boycott, coercion or intimidationCorrect
   • CTwisting, because it causes policies to be replaced
   • DRebating, because it changes the compensation paid

   Why: TIC 541.054 prohibits committing, through concerted action or agreement, an act of boycott, coercion or intimidation that results or tends to result in unreasonable restraint of, or monopoly in, the business of insurance.

   Reference TIC 541.054 — Texas outline I.D.1.g

5. To close a sale, an agent offers to pay the client's first month of premium out of his own commission. The policy says nothing about this. Under TIC 541.056 this is:

   • ATwisting
   • BLegal, because premium discounts are always allowed in Texas
   • CLegal, because the money comes from the agent, not the insurer
   • DAn illegal rebateCorrect

   Why: TIC 541.056 prohibits giving, as an inducement to buy a life, annuity or accident and health contract, a rebate of premium or any valuable consideration not specified in the contract. Paying part of the client's premium from the agent's own commission is a classic rebate.

   Reference TIC 541.056 — Texas outline I.D.1.e

6. Which item may a Texas agent give a prospect without it being treated as an illegal rebate?

   • AA $100 gift card given to every prospect who buys a policy this month
   • BA promotional item, such as a calendar or pen, valued at $25 or lessCorrect
   • CShares of stock in the agent's own agency
   • DA refund of half of the first-year premium

   Why: TIC 541.058(b)(7) excludes from the rebate prohibition a promotional advertising item, educational item or traditional courtesy commonly extended to consumers that is valued at $25 or less. Anything of greater value given as an inducement remains a rebate.

   Reference TIC 541.058(b)(7) — Texas outline I.D.1.e

7. An insurer lets an annuity owner exchange her contract for a new annuity from the same insurer, waives the surrender charge, credits her for the years she held the old contract, and explains it fully. Under TIC 541.058 this is:

   • AUnfair discrimination against owners who do not exchange
   • BAn illegal rebate, because waiving any contractual charge is a special favor to one owner
   • CTwisting, because one contract replaces another
   • DNot a prohibited rebate, if the waiver is fully disclosed and she gets credit for time heldCorrect

   Why: TIC 541.058(b)(4) provides that waiving surrender charges when an annuity is exchanged for another annuity of the same insurer or an affiliate is not a rebate or discrimination, if the waiver and exchange are fully and fairly explained and the owner gets credit for the time the prior contract was held.

   Reference TIC 541.058(b)(4) — Texas outline I.D.1.e

8. Under TIC 544.002, an insurer may NOT charge a different rate for the same coverage because of an individual's:

   • ARace, religion or national originCorrect
   • BMedical history disclosed on the application
   • CHazardous occupation, such as commercial diving
   • DSmoking status, when supported by actuarial data

   Why: TIC 544.002 bars refusing coverage, limiting it or charging a different rate because of race, color, religion, national origin, age, gender, marital status, geographic location, disability or partial disability. Risk-based factors such as tobacco use, occupation and medical history are legitimate underwriting. Marital status may still be used to define who qualifies for dependent benefits.

   Reference TIC 544.002 — Texas outline I.D.1.i

9. Two applicants are the same age, sex and health class and have equal life expectancy, yet an insurer charges one a higher rate for the same life policy with no actuarial reason. TIC 541.057 calls this:

   • ATwisting, because the higher rate may push the applicant to another insurer
   • BRebating, because one applicant effectively receives a premium discount
   • CUnfair discrimination among people of the same class and life expectancyCorrect
   • DLegal risk classification, since insurers may set their own rates freely

   Why: TIC 541.057 makes it unfair to discriminate, in a life insurance or annuity contract, between individuals of the same class and equal life expectancy in the rates charged, the dividends or benefits payable, or any other contract term.

   Reference TIC 541.057 — Texas outline I.D.1.i

Drill the whole domain

• Texas Statutes and Rules Common to Life and Health (10.8%)

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• Texas health insurance mandates, Medicare supplements and the ACA
• Texas HMO rules for the life and health exam

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